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Exploring Gold as Alternative Currency for Future Cost Estimation in Telecommunication Projects

FEATURED PAPER

By Hari Kumar Sellappan

Jakarta, Indonesia
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Abstract

The volatility of US dollars and its decline in purchasing power have led to major cost overruns during project lifecycle, hence raising doubts to continue using US dollars as basis for cost estimation. Current industry practice is to build in risk contingency as a fix percentage of total project budget or factor inflation for project cost estimation. Both methods have shortcomings and does not account for the changing worth and Purchasing Power fluctuations of the contract base currency, thus the actual cost during project execution is significantly different than assumptions used during project cost estimation.  This creates a need for an alternative currency with stable and reliable value to be used as cost estimation baseline.

The objective of this paper is to explore gold as a possible alternative currency and test it against several applications relevant to telecommunication projects. First, the reliability of gold in terms of purchasing power will be established by comparing to US dollar. Next, gold equivalency (in ounces of gold) will be applied for selected materials and equipment based on historical data to analyze the proposed alternative cost forecasting model. Finally, the predictive pricing model output for next three years (until 2015) will be presented based on gold equivalency and gold price forecast.  The findings show that the proposed method gives a better representation of future material prices compared to relying solely on US Dollars as cost estimation yardstick and recommends a change in cost estimation paradigm for projects with medium to long time horizons.

Keywords: Gold Price, Cost Estimation, US Dollars, Inflation, Purchasing Power, Telecommunication, Ready Mix Concrete, IBS Antenna, Base Transceiver Station (BTS), Gold Equivalency, Price Forecast, Project Cost Engineering, fiat currency, paper currency, Consumer Price Index (CPI), Big Mac Index (BMI).

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About the Author

Hari Kumar Sellappan

Author

Hari Kumar Sellappan is a telco professional with over 12 years of experience in Telecommunication Engineering, Project Management and Technical Operations. He is currently the Vice President for Network Projects and Implementation at SmartFren Telecom (Indonesia). Graduated from University College London (UCL), Hari Kumar holds a M.Sc. (Distinction) in Spacecraft Technology and Satellite Communications and a Bachelor’s degree in Engineering. His past engagement includes Maxis Communications (Malaysia) and Huawei Technologies (APAC Region). Hari Kumar is a Certified Cost Engineer (CCE), driven by passion to advance telco cost engineering and service delivery. He lives in Jakarta, Indonesia and can be reached at [email protected].